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Astrea 7 PE Bonds - Balloting Results

Astrea 7 announced that its bond offering was 3x subscribed. Class A-1 Bonds The public offering for the S$280m bonds received S$877m worth of application, meaning that it was 3.1x subscribed. More than 75% of the bonds were allotted to applicants who applied for less than $50,000. Investors who applied for S$9,000 and below received its full allocation while investors who applied up to S$49,000 received up to S$12,000 bonds. Those who are more adventurous received a 50% chance of getting something more meaningful as shown in the table below. Class B Bonds The public offering of US$100m bonds was about 1.26x subscribed. It was unfortunate that the Class B was less well received as investors probably shun the issue not because of the interest rate but more likely due to the forex rate of 1.3866 at which the bonds were fixed.  This likely deterred investors who may be holding on to USD or hold the view that the USD is at record levels.  For investors who wanted to subscribe but were dete

Digital Core REIT


Pardon the lack of pictures or analysis - this post was done while I am traveling and writing this at 4am. 😂 Here are my quick thoughts on Digital Core REIT. I will try to fill up with pictures when I am back. 

If you want views from other bloggers on this REIT - I thought the write ups from Financial Horse and Investment Moats did a much better job than I do here. Read up on how alignment and conflicts of interest are being addressed as I didn't have much time to dig deeper on that. 

Digital Core REIT ("DC REIT") is offering 267.034 units at US 88 cents per unit for its IPO of which 13.352m will be for the public and the rest via placement. 

The Singapore public offer is offered at $1.21 per unit. The IPO will close on 2 Dec 2021 at 12pm. 

It's a pure play data centre S-REIT and sponsored by the largest global owner, operator, developer and acquirer of data centres. 

Yield



The forecast yield for 2022 is 4.75% but the Prospectus has boldly declare a total return of 10.01% , if DPU growth is included. 

The first distribution period will be from listing date to 30 June and paid before 30 Sep 2022. It will be payable semi-annually thereafter. 

Portfolio



The portfolio comprises 10 mission critical data centres located in key strategic markets across US and Canada and tenanted to high quality customers such as Facebook, IBM and Oracle. 

They are in Silicon Valley, Los Angeles, Toronto and Northern Virginia, all running at 100% occupancy. 

Cornerstone Investors

There are 26 of them. All the who's who is supporting this IPO - from A to V - AIA, BlackRock, Fidelity, Value Partners. 

What I like about the DC REIT 


  •  Strong macro tailwind from digital transformation that was accelerated by Covid
  • Strong and resilient freehold portfolio with blue chip customer base and in built 1-3% rental escalation and triple net lease
  • Sponsor is a global leader, listed in NYSE (ticker code DLR) with US$44b market capitalisation and has a potential pipeline of US$15b and under a global ROFR and well aligned
  • Low fearing of 27% allows ample debt headroom for new and accretive acquisitions

  • Strong "stabilising" mandate of up to 20% of units (usually its 5%)
  • Strong cornerstone investors 
  • Sponsor will co invest with DC REIT for all future acquisitions  
Some of my concerns 
  • Forex conversion risk at sale. The fx rate for public investors are fixed at $1.375. If you are of the view that you can acquire directly from the market at better FX rates, or if you have USD to find the purchase, then it might makes sense to buy it at launch, provided the price doesn't "pop" on day one 
  • Capital fund raising via placement - as long as the share price is above book, it will be accretive and less dilutive. It also means you will have less concern that it will be a rights issue that you have to keep forking out cash each time they make acquisitions. 
Fair value 

The closest peers will be Keppel DC REIT, which is trading at 1.9x price to book and FY2022E yield of 4.4-4.7% (analyst reports from CLSA, HSBC and JPM)

Mapletree Industrial Trust is trying to move into the data centre segment and is trading at 1.4x price to book and FY2022E yield of 5.6% (source UOBKH)

The price to book for Digital Core REIT is around 1.05x. Signalling good upside to this REIT if it can shows the growth which has benefited Keppel DC REIT and Mapletree Industrial REIT. I believe this is one key reason why the Sponsor is attracted to list Digital Core REIT on SGX. It is a valuable currency with which they can leverage and arbitrage on if things go to plan. 

Mr IPO ratings

I would have preferred to do a more detailed analysis and write up but it was a short fuse IPO where I am traveling and demand from investors probably make them cut short the public offering timeline as well. 

Based on what I am reading from the prospectus and what the valuation and yield is - it is a 3 chills rating. The challenge for retail investors will be getting the allocation. I wasn't offered the placement tranche either through DBS 😠 

The price to book arbitrage between this and other data centre REITs listed on SGX alone seemed to make this exercise worthwhile for the Sponsor and investors who "Cheong" for the placement tranche.   It  also explains why a 20% over allotment was needed for the stabilising manager. A nice price to book valuation is important to the Sponsor. 

Do note that for REITs, the ratings are for long term hold and less for flipping. No point flipping IPOs these days. 

Comments

Anonymous said…
Many thanks for your write up given your busy schedule.

With a 1% FX commission ,meaning if you apply 10000 shares at $12100 you will lose out about $100 if not allotted?

Right? As such,is it still worthwhile to apply given that it will be highly challenging to be allocated?
Unknown said…
what do you think is the fair value
Mr. IPO said…
It really depends how u value it. If based on yield, probably about right around IPO price but if you factor in the lower price to book, then potentially it might go higher and Keppel DC REIT is the “target@ at 1.9x price to book! A more conservative PB of 1.2x would imply a fair value of USD1 or higher.
Mr. IPO said…
Not really. If you are not successful, you will be refunded the SGD you applied for. Only those portion that is successfully allotted will be “converted” using the exchange rate of 1.375
Anonymous said…
The result is out @ SGX Announcement! 50% of getting public allotment. More applicants than Daiwa's DHLU. Very hot indeed